Funding For Lending – First Step In Aid Withdrawal?
02nd December 2013
The big news last week was the sudden planned withdrawal of the Funding for Lending Scheme, (FLS) from mortgage finance. If you recall this was one of the first Government incentives that allowed lenders to access cheaper funds from the Government providing they lent this out to borrowers.
Some reports reckon this has helped to reduce mortgage rates by around 1% at least since its introduction.
Whilst this news seems to have come out of the blue, given the way that the housing market has been reacting of late it is not quite such a big surprise. This type of aid has to end eventually and focussing on the small business sector which requires more assistance is a sensible move.
Whilst many lenders have been preparing for the end of this scheme and looking at other lines of funding which some suggest have been held back by the FLS, this could be more expensive resulting ultimately in higher rates for mortgage borrowers; although the good news is that savers should benefit.
Whilst it may not have a massively profound effect on mortgage rates initially, it does look like the beginning of the end for historically low rates. Much depends on competitive pressures remaining high and lenders appetites to gain market share.
What is however a touch worrying, are the potential powers outlined to control LTV’s and Loan To Income ratios which could seriously affect for example, the First-Time Buyer market and set us all back.
Of course we still have the second phase of the Help To Buy Scheme, which although targeted at a specific problem, the dearth of 95% mortgages, has always been a bit of a worry. Whilst it has undoubtedly lead to an increase in activity amongst buyers there are many questions that need to be answered.
Whether lenders have the staffing levels to deal with even more demand when many seem to be struggling at present is one issue, but there is still the question as to whether a tax payer backed scheme is really necessary. As economic recovery continues to appear more sustainable some lenders are already starting to lend at higher Loan-To-Values anyway.
Whilst many of us agree on the economic importance of the housing sector, there is a real worry that this will cause a house price boom that if left unchecked, could cause as many problems as it solves.
A clear, workable exit strategy has always been needed to ensure the UK housing market does not become stuck on stimulus and the sudden ending of a government support package represents a significant line in the sand.
This end may have come too early and too sudden for some, so how the market reacts will be interesting to see. For many borrowers however, locking into a low rate now may prove to be a wise move.
Either way, the ending of a government support package represents a significant line in the sand and for many, locking into a low rate now may prove to be a wise move.
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Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.